A state-backed equity release scheme should be compulsory for asset rich, cash poor pensioners

Retired? Asset rich and cash poor? Too much property, not enough pension?

Good news. An awful lot of brains are looking into solutions for your problems. I wrote here earlier this week about equity release and how that might or might not help. But I also wrote here last year about how it might be an idea for the state to step in and offer a version of less-expensive-than-usual equity release to help cover late in life care costs.

I hate the idea of extending our horribly bloated state any further than we have already. But it makes some sense to ease the lives of the elderly letting them briefly borrow against their houses rather than have to go through all the hassle of selling when they are already suffering.

This idea has now been taken a little further by Professor Les Mayhew and David Smith of Cass Business School. They propose, in a report out today, that people should be able to sell a portion of their house to the state in return for a guaranteed lifetime income. Upon their death, the house would be sold, the debt to the state paid, and any remaining value passed to the heirs.

This makes some sense, and marries nicely with my own thoughts from last year– although the lifetime income bit will need some thought, given that annuities aren’t exactly fashionable at the moment.

But there is a confusing bit in the report for me. It says that the borrowers should not be hit with higher taxes, or suffer the withdrawal of any benefits that they might be already getting. To me, this makes no sense.

Clearly, income created from equity release should not be subject to tax, but there is can of worms in the benefits bit. I have never quite understood why it is that you can own a house outright but still receive benefits paid for by taxpayers  – many of whom probably don’t own a home.

It would make much more sense to me if everyone who owned assets was refused benefits until they had made maximum use of those assets. So surely the beauty of this scheme is that it allows people the dignity of supporting themselves from their houses, without having to actually sell them.

I don’t think we should just be offering state-backed equity release to those are so short of pension income they require taxpayer-funded benefit payments. I think we should be insisting on it – as the first step in the rollback of the payment of taxpayer-funded welfare to people (asset rich, cash poor…) who could actually finance themselves.